1

Propane Supply and Logistics Overview

Pennsylvania Public Utility CommissionWinter Reliability Assessment Meeting

October 12, 2004

Harry Hunter Hanger Jr.Manager of Supply and Risk Management

Atlantic Energy Import TerminalChesapeake, VA

2

U.S. Propane SupplyDomestic propane supplies are sourced from:

50% Natural Gas Processing50% Crude Oil Refining

10-15% of U.S. supply is Imported from: Canada by rail or pipelineWaterborne Import Terminals

Price Basis Locations:Mount Belvieu, Texas (Gulf Coast)Conway, Kansas (Mid-Continent)

Pricing will follow crude values (roughly 75%) during spring and summer and follow demand fundamentals during the peak season

3

Propane Value Relationship to Crude and NG

4

U. S. Propane Demand

Petrochemical Feedstock Building blocks for plastics, fibers, and chemicals

Retail Market (Highly Seasonal)

Residential Customers

Commercial space heating

Industrial space heating and processes

Agricultural crop drying

Engine fuel (folk lifts)

Grill Cylinders

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Engine Fuel6.2%

Residential48.2%

Agricultural 6.9%

Industrial 11.1%

Commercial22.9%

Cylinder Refill 4.9%

Retail Market End Users

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Retail Marketers

Fragmented Market with 4,000+ Companies in the U.S.Large Multi-State Marketers

Regional Independents

Small “Mom & Pop” companies

Broad range of sophistication and operating philosophy

Largest multi-state marketer has +/- 10% market share

Retail segment sells around 11 billion gallons annually

50% of annual sales are made during 4 winter months

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Retail Marketers Portion of Sales (2003)

56%

6%9%11%

6%

4%

3%

2%1%1%

1%

AmeriGas

Ferrellgas

Suburban

Cenex

Heritage

Cornerstone

Star Gas

Inergy

MFA

Southern States

Independent Marketers

8October 16-17, 2000 NPGA Board Meeting - Minneapolis, MN 11Slide

U.S. Propane Storage Capacities

131.58

5.35 12.360.83 9.15 1.69

111.25

0

20

40

60

80

100

120

140

Mill ion Barre ls 131.58 5.35 12.36 0.83 9.15 1.69 111.25

Under-ground

(Primary)

Above-ground

(Primary)Ra ilcars Transports Dealer Bulk

(Secondary) Bobtai lsDomestic Consumer (Tertiary)

Million Barrels

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Distribution LogisticsOver 250 Distribution Supply Points across U.S.

Major storage/terminal facilities (Belvieu, Conway, Sarnia)

Refineries

Natural Gas Plants and Fractionation Facilities

Pipeline Terminals

Rail Terminals

Waterborne Import Terminals

Truck transportation is required from these distribution supply points to the propane dealer’s local bulk plant and then again to the end user tanks.

UNITED STATES NGL DISTRIBUTION SYSTEM

MAJOR LPG PRODUCT PIPELINE

MAJOR LPG PRODUCT IMPORT TERMINALS

CN

MAP

CO

MONT BELVIEU1

Edmonton3

CONWAY/HUTCHINSON4

SARNIA5

Hattiesburg2

CN

TEP

TEP

DIX

TEP

MAPMAP

MAP

KO

MAP

PH

PH

TEP

RG

KA

KM KMCO

33

DIX

MA

PH

LEGEND

5CO5

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Transporting PropaneHigh seasonal heating demand results in competition for

limited delivery capacity during the winter months.

Demand ratios in PA area are 6 X 1 (winter vs. summer) with pipeline delivery capacity of a little over 2 X 1 and refineries are less than 1 X 1

Ratios require supplemental supply sources (storage/rail)

Typical tank sizes for the various means of transportation:

Ocean Going Ships –----------- 4 MG to 18 MGBarges ----------------------------- 420,000 to 1 MGRailcars ------- -------------------- 30,000 gallonsTransport trucks ---------------- 10,000 gallonsDelivery Bobtails ---------------- 3,000 gallons

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Pennsylvania Sources of PropaneRetail Demand of 320 Million Gallons per Year

TEPPCO Pipeline (Dubois, Greensburg, Eagle)

Refineries (Warren, Sun, and Del City)

Storage Terminals (Schafferstown, Sinking Springs)

Rail Cars directly to dealer bulk storage locations

Rail Car Transshipment Terminals (6 locations)

Import Terminals and Storage Facilities in surrounding states supplement supply in PA during peak demand

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Residential Storage

A residential home tank is sized based on propane appliances and types of usage (500 or 1,000 gallon tank)

Generally, residential customers will need a delivery every 30 days and should be able to go 45 days assuming normal winter weather

Deliveries are scheduled by a computer program that projects usage factoring in customer appliances, usage history, and actual Degree Days

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Component Costs of Retail Price of Propane in PA Market

Basis Cost (current market value @ Mt. Belieu, TX)

PLUS

Location Differential (cost to deliver to particular market area)

PLUS

Transport Freight Cost (tractor trailer delivery to bulk plant)

PLUS

Bobtail Delivery Cost (final delivery to customer)

PLUS

Dealer operating costs, margins, etc.

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Location Differential Coststo PA Supply Points

Effected by:

Geographic area within state

Method of delivery (pipeline, rail, refinery)

Season (summer or peak winter—6X1 ratio)

Demand (weather pattern/timing)

Performance of other supply points

Performance of truck and rail transportation

In general Location Differentials at PA primary supply points:

Summer 6-10 CPG

Winter 11-20+ CPG

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Truck Transportation Delivery Costs

Transports deliveries to local bulk plant effected by:Distance from supply source

Seasonal Demands

Driver DOT on duty time limitations

Customer faithfulness to carrier during slow season

Road conditions

Availability of loading space

Performance of other trucks and rail transportation

In general, the Transportation Differential in PA is 3-6 CPG

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Summary of Winter Propane Supply for PA

U.S. total inventory is at normal levels (68 million bb or 3 billion gallons)

East Coast inventories are up 30% over last year (5.2 million bb, 226 million gallons)

PA inventories are thought to be at normal levels (proprietary information)

TEPPCO has increase pump capacity to NE by 420,000 gallons per day

TEPPCO overall inventory level is twice as high as 5 year average

U.S. propane base values are at +40 cpg over historic highs (85-90 cpg)

Supply and transportation are positioned for normal weather patterns and demand

Continued refinery propane production during peak demand is a crucial factor significantly influencing supply availability and pricing in this market

Ultimately the most significant factor in the Mid-Atlantic propane market is the pattern and intensity of the cold weather